- Car insurance is required by most auto lenders when financing a car
- Insurance rates are lower when purchased directly through an insurer instead of through a bank
- Those who finance their vehicles are subject to force-placed insurance if the contract lapses
Purchasing a car is one of the most stressful transactions you can make as an adult. If you’re choosing to finance your car, there’s also car insurance to consider. We’re here to make the process easier for you.
Below, we walk you through the options of purchasing car insurance through a bank versus through a private company. Read on to find out which option is right for you.
Do I need to have car insurance?
When you finance a vehicle, your lender owns it until you pay it off. To make the investment lower risk to them, they will require you to have the following car insurance coverage:
- Coverage for bodily injury and property damage caused in an at-fault collision.
- Protection against damages related to theft, animals, vandalism, and weather.
- Coverage for damage related to a collision with a fixed object.
It’s important to take a look at your loan contract, as well as state requirements, to find out what your car insurance coverage needs to include.
Can I buy car insurance through a bank?
It is an option to buy car insurance through a bank. The downsides to doing so are that purchasing car insurance through a bank will mean higher monthly rates and fewer coverage options.
Buying car insurance directly through a car insurance company has many more benefits. It’s cheaper, provides you with more coverage options, and allows you to customize your insurance to suit your lifestyle.
Is it bad to go through a bank for car insurance?
Purchasing car insurance through a bank leaves you at the mercy of the cost and coverage options offered by the bank. Oftentimes, the bank is partnered with only specific insurers and sells only specific policies. Car insurance is not “one size fits all,” and should not be sold as such.
Buying insurance through a bank also prevents you from finding the best coverage, and deal, for you. If you choose to shop around, remember that waiting too long to purchase insurance may leave you vulnerable to force-placed insurance, which can be costly and is added by your lender without notice.
What is force-placed insurance?
Your lender will require you to have car insurance in order to process your car loan. If you fail to obtain car insurance in time or have a lapse in car insurance, your lender can purchase insurance on your behalf, without your consent.
This is known as “force-placed” or “lender-placed” coverage. Once enacted, your monthly auto loan amount will increase to accommodate the new coverage. What’s more, your lender is under no obligation to inform you of the transaction.
Keep in mind that the force-placed insurance clause in your loan contract is there to protect your lender, not you. Be sure to review the terms of your loan so you are not blind-sided by this additional charge.
Can I remove force-placed insurance?
Force-placed coverage can be removed. To do so, make sure you:
- Keep making payments. Even if insurance charges have been added to your loan amount, keep making your monthly payments on time. Since force-placed insurance is only added when your account has lapsed, any further miss-steps can make it all the more difficult to have it removed.
- Buy car insurance quickly. Purchase car insurance right away and obtain proof. If you’re unable to reinstate old coverage, shop around for coverage outlined in your loan contract. Be sure to take a look at state mandates, as each state has its own requirements for car insurance. It’s likely your lender will too.
- Get in touch with your lender. Once you’ve got proof of car insurance in hand, call your lender to let them know. Ask them to cancel your force-placed coverage, and provide the documentation that alternative coverage has been purchased. At that point, your lender should be able to remove what they’ve added.
You’ll want to remove the force-placed coverage as quickly as possible since it’s expensive and only protects the bank.
Going Through a Bank for Car Insurance: The Bottom Line
When all is said and done, purchasing car insurance through a bank will be more expensive, and provide you with fewer coverage options. Consider shopping different auto insurance companies to find the right policy for you, at a rate that works for your budget.
Buy your car insurance as soon as possible, and notify your lender right away. Doing so can help protect you against force-placed coverage. Be sure to review the terms of your contract to know what your car insurance requirements are, and contact your lender and car insurance agency if you have questions about your coverage.